Introduction
The rising global demand for internet services and AI applications has resulted in the consumption and processing of an ever-increasing amount of data, which is stored and processed in massive data centre facilities filled with servers and hard drives. Specifically, AI applications, like ChatGPT, consume massive energy resources to meet the increasingly complex demands of users.
To ensure uninterrupted data access, data centres must operate continuously, thereby consuming significant energy to power servers, HVAC systems, backup generators and other critical infrastructure.
The demand for data centres, and therefore the demand for energy, has rapidly grown.
Alberta has quickly become an attractive location for data centres, with at least sixteen projects currently in the Alberta Electric System Operator’s (the “AESO”) project list, totalling 8,659 MW of load. This figure does not account for the additional “behind the fence” projects which do not intend to connect to the power grid, and which are also on the rise in Alberta.
Why Alberta?
Alberta is uniquely situated for the development of new data centres for many reasons, some of which include:
- Reliable Power Supply: Most data centres require 24/7 power supply. Alberta’s abundant supply of natural gas and its capacity to produce renewable energy provides a scalable and reliable power supply for energy-intensive data centres.
- Deregulated Electricity Market: Alberta boasts a deregulated, open and competitive electricity market. This competitive power market allows developers to negotiate power purchase agreements with independent producers of their choosing, rather than relying solely on government-owned utilities and having to connect to the grid. This flexibility allows developers to “bring their own power”, an approach actively promoted by the Alberta government.
- Favourable Climate: Cooling systems are essential to enhance the performance and efficiency of data centres. While significant energy resources are required to support such cooling systems, Alberta’s colder climate and natural resources play a part in reducing cooling costs. For example, Alberta’s robust water supply can be harnessed by data centre operators and used to power water cooling technologies, thereby lowering operating costs and reducing the environmental footprint.
- Cost of Land: The cost of acquiring land in Alberta is lower compared to many other competitor jurisdictions, not to mention the large tracts of rural land available.
- Competitive Tax Rates: Alberta is home to some of the lowest corporate tax rates in Canada, making Alberta an attractive and strategic destination for data centre investment.
Four Key Considerations for Data Centre Development in Alberta
As the demand for data centres continues to increase and as Alberta solidifies its position as a data centre hot-spot, developers, operators and investors alike should consider the following factors insofar as they relate to the practicality of data centre development and operation in Alberta:
- Power Availability;
- Foreign Ownership Rules;
- Land Use and Zoning; and
- Indigenous Consultation and Engagement.
1) Power Availability
The AESO manages and operates Alberta’s power grid. If a data centre wants to use electricity from the grid, it must apply to the AESO for system access. Due to existing infrastructure limitations and long connection timelines, this process can take up to 18-24 months. For this reason, many developers are considering “behind-the-fence” solutions.
If a data centre wants to generate its own electricity, meaning that all power would come from within the facility’s boundaries without the need to connect to the main power grid, then it may proceed through the “behind the fence” process. Notably, even if the energy generation is “behind the fence,” the data centre will still be subject to the AESO’s data submission requirements for the purposes of ensuring proper system monitoring.
Premier Danielle Smith has emphasized the need for data centres to “bring your own electricity, bring your own generation.” Consequently, developers are looking to partner with power producers in order to bring their own power (likely, by way of on-site natural gas plants), and in some cases supplemented by renewable power, ensuring Alberta’s electricity system remains reliable and affordable.
If a developer plans to proceed with supplying its own power on site, the development of the power plant will be regulated by the Alberta Utilities Commission (“AUC”). Most power plant developers are required to submit an application for new power plants to the AUC, with some exemptions for power plants with a capacity of less than 5 MW. Applicants are required to engage with Indigenous groups, landowners, local communities and other stakeholders prior to submitting an application. The AUC may hold a public hearing prior to approving a new power plant application if there are outstanding concerns raised by parties that may be directly and adversely affected by the proposed power plant. Additionally, developers of power plants with a capacity over 1 MW are required to obtain an approval from Alberta Environment and Protected Areas (“AEPA”), issued under the Environmental Protection and Enhancement Act (an “EPEA Approval”). An EPEA Approval is required to construct, operate, or reclaim a power plant over 1 MW. AEPA also regulates end-of-life reclamation obligations when the power plant is decommissioned.
2) Foreign Ownership Rules
Land selection and acquisition is crucial to data centre development. While large parcels of rural land are generally available to accommodate the largest data centres, there are restrictions in Alberta that govern who can acquire certain types of non-urban land and for what purpose.
There are at least two important pieces of legislation to consider: the Agricultural and Recreational Land Ownership Act and the related Foreign Ownership of Land Regulations (the “Regulations”).
This legislation was designed to monitor the acquisition of controlled land by non-Canadian citizens and foreign controlled corporations, and creates restrictions on such acquisitions along with certain exemptions.
Key definitions:
- Controlled land means land in Alberta but does not include (i) land of the Crown in right of Alberta, (ii) land within the boundaries of a city, town, new town, village or summer village and (iii) mines and minerals.
- Foreign controlled corporation means (i) a corporation that is incorporated elsewhere than in Canada, (ii) a corporation where the percentage of foreign ownership is 50% or greater, or (iii) a corporation where less than 2/3 of directors are Canadian citizens or permanent residents.
- Ineligible person means (i) an individual who is not a Canadian citizen or a permanent resident, (ii) the government of a country other than Canada or a political subdivision of a country other than Canada, or any agency of such government or political subdivision, or (iii) a corporation incorporated elsewhere than in Canada.
While the Regulations can be complex in their application to specific circumstances, generally speaking, a foreign controlled corporation may not acquire, directly or indirectly, an interest in controlled land that is greater than 20 acres in area. This general prohibition is subject to certain enumerated exemptions within the Regulations, some of which may be applicable to data centres. For instance:
- The Regulations do not prohibit the acquisition of an interest in controlled land for the construction and operation of power plants. This may be relevant if a data centre proponent intends to bring its own power by way of a natural gas power plant.
- The Regulations do not prohibit an acquisition of an interest in controlled land for the purposes of establishing an industrial facility that does not exceed 80 acres per facility.
- An ineligible person or foreign-controlled corporation may enter into an option to purchase controlled land for up to one year pending its becoming eligible under the Regulations.
If no recognized exemption applies, the Regulations also allow for the Lieutenant Governor in Council to exclude any transaction or purchase of controlled land from the operation of the Regulations by an Order in Council (“OC”). An OC may be granted where the development is deemed to be an economic benefit to Alberta. To this end, there has been strong support by the Alberta government for data centre development and they have indicated a desire to reduce the red tape in advancing these projects.
3. Land Use and Zoning
Prior to developing a data centre in Alberta, developers typically require confirmation that municipal zoning bylaws and land use regulations support data centre development in the chosen location.
As the operation of data centres involves significant power consumption, industrial infrastructure, and potential noise due to the cooling procedures, not all sites will be zoned to allow for such uses. Additionally, large-scale developments may require additional environmental consultations, particularly in ecologically-sensitive areas.
For lands that are not already zoned for such uses, these factors may require special zoning approvals, which means that developers must engage with municipal authorities from the outset to ascertain approval timelines. Where re-zoning is required, there may be potentially lengthy consultation and approval process which can take 6-12 months or longer.
4. Indigenous Consultation and Engagement
Alberta is home to many Indigenous Nations and Peoples. A crucial part of any data centre project will be the appropriate engagement with affected Indigenous communities.
Indigenous consultations may be triggered when the government of Alberta or Canada is tasked with making a decision regarding land and natural resource management that may have an adverse impact on the exercise of Indigenous rights. For example, the approval of a power plant application by the AUC often will trigger the duty to consult. In each case, it is recommended that such potential triggers and the required scope of consultation are discussed with a lawyer at the outset of engagement.
Not only do Indigenous communities have a right to exercise their Indigenous rights, but the involvement of these communities from the very beginning of a proposed data centre project is necessary to build trusting partnerships which, in turn, positively impacts the advancement of the project. Meaningful engagement with Indigenous communities fosters collaboration, trust and potential partnership opportunities, strengthening the long-term success of a project.
Conclusion
Alberta’s energy resources, regulatory framework and business-friendly environment make it a strategic and attractive location for data centre development. However, successfully navigating power requirements, land ownership rules, zoning laws and Indigenous engagement is crucial for project success.
